Tuesday, August 4, 2020

WMG boss: ‘We’re very happy that Spotify is investing in podcasting’ | Music Ally

Having published its latest financial results this morning, Warner Music Group held its quarterly earnings call this afternoon, with CEO Steve Cooper and CFO Eric Levin fielding questions from analysis.

One of those questions focused on Spotify’s podcasts expansion, and whether it’s causing tensions around the potential impact on royalties paid out to companies like WMG. It’s safe to say Spotify will be pleased with Cooper’s answer.

“We’re very happy that Spotify is investing in podcasting. It gives them an opportunity to create another vertical that they can create not only an ad/free service around, but presumably over time a premium service,” he said.

“I believe personally that there will be people that come to Spotify for a podcast and stay for music, and that there will be people that come to Spotify for music and stay for a podcast. It does not impact our economics either on the free side or the subscription side,” continued Cooper.

“But hopefully what it will do is create appeal to a broader audience… I am sure that there will be an overlap in those Venn diagrams to drive people from podcasting to music, and music to podcasting. I also believe that that being said, that Spotify’s basic foundation stone or basic foundation will always be music. I don’t see that changing anywhere near the foreseeable future.”

Later in the call, Cooper was asked about whether he sees any opportunities for WMG to do more in podcasts. He was cautious in his response.

“We are looking at the podcast ecosphere, and we currently, with a number of our recording artists, create podcasts. That being said, the economics of podcasting remain pretty opaque, and while we are prowling around that space, we haven’t really found anything yet that has really caught our eye,” he said.

“We keep looking at the economic model of podcasting to figure out whether or not there’s something that makes sense for us to do, and whether or not there’s something that can really be done at scale. We’re going to continue to look at it,” he added. “There may be opportunities. We just haven’t seen the right ones yet.”

During the call, Cooper was also asked about Warner Music Group’s appetite for mergers and acquisitions in the current climate, given some of the recent deals in the market (for example: publishers and catalogues being snapped up).

“We are seeing a lot of opportunities and where we believe that we can execute rational, financially and operationally disciplined deals, we move forward on them, and we try and close,” he said.

“I will say this: that the market looks to me somewhere between crazy and really really crazy, and we’ve got a real cost of capital. So we continue to be very financially disciplined on one side, and very disciplined when we look at these operations, so that [we move forward] when we know that they can be reasonably and thoughtfully integrated, even as a standalone unit into the envelope under the Warner Music Group.”

“But we are not allowing Covid to screw up our brains and make us lose our wraparound, which is financial discipline.”

Cooper also talked about the boom in livestreamed concerts during the Covid-19 pandemic, suggesting that it has been one silver lining for the music industry. He cited as examples David Guetta attracting more than 12 million viewers to a livestream, as well as a paid Trivium online concert that also generated a spike in merchandise sales for the band.

“It’s hastened our move into the livestreaming world, it’s hastened our move into the virtual concert world, and I would expect in the future our activities in those areas are going to expand,” said Cooper.

“There’s this old phrase ‘nature abhors a vacuum’, and the loss of live because of the pandemic has created a vacuum. I think that that’s a situation where we will do all that we can to begin to fill it.”

“I think the pandemic and the isolation has created changes in habits, changes in behaviour. People are becoming more used to livestreaming, to virtual concerts, and it’s an area that I believe presents both a short, intermediate and long-term opportunity for us.”

Cooper was asked about the financial significance of recent licensing deals with Facebook and Snapchat, and answered by stressing WMG’s desire to play the long game with these kinds of companies.

“We look to do two things. A: revenue diversification, and B: when we see new economic models emerging, to support those models, and their growth in the short term by establishing both an operating and economic relationship with them that allows them better opportunities to boost their growth,” he said.

“By us taking that posture, as they grow [we are] then sharing in their success differently as we renew our deals over time. Our expectation is that these alternate distribution paths, particularly the social platforms, will over time be significant revenue contributors to Warner Music.”

Cooper also cited the fitness sector, epitomised by Peloton, as another area for encouraging growth in music licensing, suggesting that music is “more often than not becoming a foundational building block” for new startup business models that “are popping up every day”.

Cooper was also asked about rival Universal Music Group’s recent renewal of its licensing deal with Spotify, including early access to new marketing tools and other platform features. Will WMG be getting similar access under the terms of its own deal with Spotify?

“We have experimented with Spotify tools – Marquee and other tools – and if we choose to utilise them we can utilise them on the same basis as our substantial competitor,” he said.

“We look at all of these tools. We look at marketing not as an expense but as an investment, and so when we expend marketing dollars we look at how and where and when we get the best return on investment,” he continued.

“If we find that’s a Spotify tool, we utilise it, if we find it’s other approaches, we utilise them. What we don’t do is utilise tools where we on’t get sufficient return on investment.”

The call also saw Cooper give his views on TikTok, saying that while “it is a source of discovery both by way of new music and A&R, so from that perspective it’s very important to us” in terms of actual revenues for WMG it is “much more in the startup category” still.

(This, in response to an analyst asking whether TikTok’s ban in India, and potential ban in the US, would have a significant financial impact for WMG.)

Cooper also addressed the opportunities for WMG in emerging markets across the world, noting that even if revenues are still small, the emergence of legal, licensed streaming services is encouraging.

“Even with a more compacted economic model in those emerging markets, streaming has had a meaningful reduction in piracy, where we could get 100% of zero!” he said.

“So the growth, the conversion of people even if it’s on the free side, is converting people out of piracy into something that ultimately allows them to convert into premium utilisation, and that’s good for the music industry, and it’s good for the streamers.”

Stuart Dredge

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